A few years ago I wrote an article in Spectator Money that asked, if payday loans are so evil, why we haven’t we come up with anything better. And while Wonga, the great bogeyman of payday lending, has now been confined to the dustbin of history, more consumers than ever are dependent on high cost credit.
Two companies believe that they have what it takes to change this. Launched in the last couple of years, both Hastee Pay and Wagestream offer employees the ability to access some of their pay as it’s earnt, rather than having to wait for payday. In doing so, they believe they can reduce the nation’s dependency on high cost credit.
They also claim that their offering can increase employee productivity, retention and motivation, which is important, as they compete with a swarm of other companies marketing all manner of employee benefits to employers. While some seem rather faddish, like renting an office dog for a day, the financial wellness of employees is an important issue.
How does it work?
Both Hastee Pay and Wagestream require companies to sign-up, so you won’t be able to use them unless your employer has opted to join them. If they have, you’ll be able to access a portion of your earned wages (between 40-50%) whenever you like.
There is however a fee to access any withdrawals. Wagestream charges £1.75 irrespective of the amount an employee wishes to withdraw, while Hastee Pay charges a minimum fee of £1, up to 4.5% for withdrawals over £22. There may also be a cost for an employer, which is likely to vary significantly.
Is it too good to be true?
Getting paid on demand sounds like a good idea to many employees, and is in line with a world view that advocates for more personal responsibility. But the jury’s out on whether on demand salaries will help us to better manage our money or help to create an even bigger problem by making it harder to budget for significant outgoings like paying rent at the end of the month.
Another challenge is around market acceptance. Efforts to get mortgage companies to recognise rental payments as proof of affordability have proven painfully slow, despite the backing of HM Treasury. Anything that could indicate that a consumer struggles to budget is unlikely to be viewed positively by mortgage lenders. As one of the biggest financial challenges faced by working aged consumers is getting on the housing ladder, this could be an important downside.
Finally, the world of work is changing fast. Nothing hammers home this point more than the Office of National Statistics, which predicts that over 50% of working population Brits will be either freelancers or self-employed within a decade. With fewer of us getting paid a fixed salary at the end of month, the prize may not be as big as it seemed a few years ago.
Hastee Pay and Wagestream have both raised significant funding and have growing client lists, but it’s very early days for the on-demand salary industry in the UK. My view is that we’ll end up seeing the 80/20 rule in practice. For 80 per cent of consumers, being able to access some of their pay whenever they want will prove to be an empowering experience that helps them take more control of their financial wellbeing. But for the other 20 per cent, there’s a real risk that it will lead to a greater dependency on high cost credit. While getting paid on demand may well be the future, it’s a future that won’t be kind to everybody.
Michael Fotis is the founder of Smart Money People, a consumer review website for financial products and services.